Right, which is great: because CL forces folks to say whether they're a private owner or a dealer you can filter for those properties.

And not hidden and tucked away either: it's the absolutely very first top-most set of options on the search results page. See those three [all] [owner] [dealer] buttons? Click "owner". You're welcome.

I've always wondered: what is the mechanism keeping people honest about being owner vs dealer?

Nothing. Dealers know to check the owner button.

Whenever I'm buying something on CL, like say a car, I always ask the person who answers the phone: "I'm calling about the car. Tell me X about it."

If they reply "Which car?" then you've reached a dealer, not an owner.

And then, of course, you go back to CL and flag their post, right? ...You do report abuse on this free platform so that everyone's experience can be improved, right?

Does that button... do anything?

If you have to ask: not until you actually use it, no.

The photos will be obvious enough if its a dealer car or being sold out of a driveway

Other than "getting your account banned for multiple reports on multiple postings"? Nothing. If you see someone abusing CL, you report it. If you don't, you're just helping make sure people can keep being dishonest on the platform.